Budget Day is Feb. 27

Finance Minister Bill Morneau will introduce the next federal budget on Feb. 27 as the country faces persistent uncertainty around trade and competitiveness.

With the future clouded by such unknowns, private-sector experts will press Morneau to keep his fiscal powder dry when they gather later this week for their annual pre-budget meeting.

Morneau is to sit down Friday in Toronto with leading economists at a roundtable that typically includes about a dozen experts from commercial banks, think tanks and trade associations.

Finance ministers routinely call on outside economists for input and forecasts as part of the budget-writing process. Their projections are averaged to create a fiscal foundation for the budget.

Some economists say that late-2017 improvements in the economy will likely give Morneau more fiscal elbow room in the budget, compared to his October update. Others are less optimistic about the changes in recent months and expect the government to find itself in a similar budgetary position.

But regardless of the fiscal footing, there’s agreement that the government should proceed with caution. They want Ottawa to make sure it’s ready for the still-unknown impacts of the drawn-out renegotiation of the North American Free Trade Agreement and the U.S. move to slash corporate taxes.

“Those are definitely the big two — there’s no question about it — and the kind of chill that that could potentially put on the business investment climate in Canada,” said BMO chief economist Doug Porter, whose colleague will attend the Morneau meeting in his place

“That’s a tough twosome to deal with.”

Last month, the Bank of Canada highlighted the widening negative impacts of NAFTA’s uncertain future. The bank not only made a point of emphasizing the potential effects on trade, but also the potential damage on business investment caused by uncertainty itself.

The central bank estimated trade uncertainty would lower investment by two per cent by the end of 2019. It said new foreign direct investment into Canada had tumbled since mid-2016 _ a possible consequence of the unknowns around trade.

The bank also warned that lower corporate taxes in the U.S. could encourage firms to redirect some of their business investments south of the border.

Business associations fear the U.S. tax changes could end up inflicting more damage on the Canadian economy than the possible termination of NAFTA.

Morneau’s office has responded to the concerns by arguing that Canada has advantages such as an educated workforce and still boasts a competitive tax rate among G7 countries, even after the U.S. reforms. Ottawa is carefully assessing the U.S. tax changes and will take time to fully understand their potential impacts, his office said in a recent statement.

Scotiabank chief economist Jean-Francois Perrault said he doesn’t think the corporate tax changes in the U.S. will have a major impact on Canada _ but he admits they could.

Perrault, who will attend Friday’s meeting with Morneau, recommends the government hold off on any big spending plans just in case it needs to respond with tax measures of its own to keep Canada competitive.

“It would be very prudent for the government to wait until we see if, in fact, there is evidence that what’s happening down south in the U.S. is having a detrimental effect on Canadian business,” Perrault said.

Heading into the budget, he thinks the solid economy has given Morneau more fiscal space than he had in the fall.

In October, Morneau’s fall fiscal statement predicted a deficit of $18.4 billion in 2017-18 and a $15.6-billion shortfall in 2018-19.

Perrault, a former assistant deputy minister under Morneau, said he now expects the federal government to be on track for deficits of $16.8 billion in 2017-18 and $14.8 billion in 2018-19.

Porter doesn’t think there have been major changes in the government’s budgetary outlook since the fall because 2017’s surprising strength was largely due to temporary factors. This year, the economy, while still looking relatively healthy, should be a little bit cooler, he added.

Craig Alexander, chief economist for The Conference Board of Canada, predicts the deficit to be about $4 billion smaller in 2017-18.

“But going forward, they’re not going to have a lot of extra money in the kitty for new initiatives if they want to keep debt-to-GDP ratio on a downward path,” he said.

Following the 2015 election, the Liberal government abandoned pledges to run annual deficits of no more than $10 billion and to balance the books in four years. Instead, it is focused on reducing the net debt-to-GDP ratio — also known as the debt burden — each year.

Alexander would like to see Morneau produce a plan to balance the books, while Perrault is less concerned about it as long as Ottawa keeps lowering the debt-to-GDP.

Porter would also like to see an effort to eliminate the deficit because Canada is entering a late stage in the economic cycle — but it’s not his top priority.

“I’m concerned about our tax competitiveness first and foremost, and that’s actually where I’d like to see the government concentrate efforts.”

Why should the budget be balanced? If a balanced budget means high job loses and an economy not doing so well, what’s the matter with running a deficit? Watch the Conservatives and the NDP promise a deficit in the next election. They have to if they have a hope in hell of winning. Sadly, that’s the reality. Second best country to live in the world, they’re saying. Isn’t that good enough for you?

With growth at 3%, now is absolutely the time to do so as the economy can handle it. If we are running deficits now, imagine what they will be when the next recession happens and/or interest rates go up. Keynesian economics says you run deficits during recessions (which we are not in) while surpluses during periods of strong growth which we are in right now.

And in a nutshell you have once again proven why socialists are dangerous. Here is a news flash: Canada shed nearly 90,000 jobs in January. Now your going to tell us that it would have been worse if the Governments had tightened their belts. Those jobs you speak of in deficit budgets are public service jobs which never bodes well in the long term. “Second best country to live in the world..” on borrowed time and the house of cards will come crumbling down…
I suppose you ran your household in the same manner and now are spiteful living in subsidised housing and envious of the “Joneses” who did not live on borrowed money but off their hard earning. Now your solution for your life failure is to vote in governments that will take from them to give to you and your kind.

The US, with its federal executive and legislature (both houses), currently controlled by a Republicans (conservatives), is moving forward to passing a whopping a 1.5 trillion dollar deficit budget. Are you so ideologically blind not to notice that deficits are not simply a “Liberal” thing?

Don’t worry Corporate Canada, Bay Street Bill has your back. Socialized Debt and Privatized Profits. Where were all of these so called ‘ think tanks ‘ when our manufacturing sector were closing their doors for the last 15 years.

Oh, you silly Conservative. Clinging on to the negative and pretending there’s no positive news on our economy. Hey, we’re considered the second best country to live in the world. With the lowest unemployment rate in 40 years, surely Mr. Morneau has done something right. By the way, every country in the world is in debt. Always will be.